Summer 2012

The Withering of the Affluent Society

by Robert J. Samuelson

Though Americans see upward mobility as their birthright, that assumption faces growing challenges, with consequences not just for the size of our wallets but for the tenor of our politics.

The future of affluence is not what it used to be. Americans have long believed—it’s part of our national character—that our economic well-being will constantly increase. We see ourselves as a striving, inventive, and pragmatic people destined for higher living standards. History is a continuum of progress, from Robert Fulton’s steamboat to Henry Ford’s assembly line to Bill Gates’ software. Every generation will live better than its predecessors.

Well, maybe not.

For millions of younger Americans—say, those 40 and under—living better than their parents is a pipe dream. They won’t. The threat to their hopes does not arise from an impending collapse of technological gains of the sort epitomized by the creations of Fulton, Ford, and Gates. These advances will almost certainly continue, and per capita income—the average for all Americans and a conventional indicator of living standards—will climb. Statistically, American progress will resume. The Great Recession will be a bump, not a dead end.

The trouble is that many of these gains will bypass the young. The increases that might have fattened their paychecks will be siphoned off to satisfy other groups and other needs. Today’s young workers will have to finance Social Security and Medicare for a rapidly growing cohort of older Americans. Through higher premiums for employer-provided health insurance, they will subsidize care for others. Through higher taxes and fees, they will pay to repair aging infrastructure (roads, bridges, water systems) and to support squeezed public services, from schools to police.

The hit to their disposable incomes would matter less if the young were major beneficiaries of the resultant spending. In some cases—outlays for infrastructure and local services—they may be. But these are exceptions. By 2025 Social Security and Medicare will simply reroute income from the nearly four-fifths of the population that will be under 65 to the older one-fifth. And health care spending at all age levels is notoriously skewed: Ten percent of patients account for 65 percent of medical costs, reports the Kaiser Family Foundation. Although insurance provides peace of mind, the money still goes from young to old: Average health spending for those 45 to 64 is triple that for those 18 to 24.

The living standards of younger Americans will almost certainly suffer in comparison to those of their parents in a second crucial way. Our notion of economic progress is tied to financial security, but the young will have less of it. What good are higher incomes if they’re abruptly revoked? Though it wasn’t a second Great Depression, the Great Recession was a close call, shattering faith that modern economic policies made broad collapses impossible. Except for the savage 1980-82 slump, post-World War II recessions had been modest. Only minorities of Americans had suffered. By contrast, the Great Recession hurt almost everyone, through high unemployment, widespread home foreclosures, huge wealth losses in stocks and real estate—and fears of worse. A 2012 Gallup poll found that 68 percent of Americans knew someone who had lost a job.

The prospect of downward mobility is not just dispiriting. It assails the whole post–World War II faith in prosperity. Beginning in the 1950s, commentators celebrated the onrush of abundance as marking a new era in human progress. In his 1958 bestseller The Affluent Society, Harvard economist John Kenneth Galbraith announced the arrival of a “great and unprecedented affluence” that had eradicated the historical “poverty of the masses.”

Economic growth became a secular religion that was its own reward. Perhaps its chief virtue was that it dampened class conflict. In The Great Leap: The Past Twenty-Five Years in America (1966), John Brooks observed, “The middle class was enlarging itself and ever encroaching on the two extremes”—the very rich and the very poor. Business and labor could afford to reconcile because both could now share the fruits of expanding production. We could afford more spending on public services (education, health, environmental protection, culture) without depressing private incomes. Indeed, that was Galbraith’s main theme: Our prosperity could and should support both.

To be sure, there were crises of faith, moments when economic progress seemed delayed or doomed. The longest lapse occurred in the 1970s, when double-digit inflation spawned pessimism and frequent recessions, culminating in the 1980-82 downturn. Monthly unemployment peaked at 10.8 percent. But after Federal Reserve chairman Paul Volcker and President Ronald Reagan took steps to suppress high inflation, faith returned.

Now, it’s again imperiled. A 2011 Gallup poll found that 55 percent of Americans didn’t think their children would live as well as they did, the highest rate ever. We may face a crimped and contentious future.

Let’s be clear: The prospect is not national impoverishment; it is of relative deprivation. Even if disposable per capita incomes fell 10 percent—an extreme outcome—Americans would remain wealthy by any historical standard. Such a change would entail a decline in the annual disposable income from $37,000 to $33,300 (in 2011 inflation-adjusted dollars), probably over many years. People might adjust in ways that barely affected daily routines. They might live in slightly smaller houses, drive more fuel-efficient vehicles, or eat out a bit less. These are inconveniences, not tragedies.

But popular expectations would be dashed. Even assuming a full recovery from the Great Recession—possible, though not certain—the resulting prosperity will be qualified by greater competition for scarce economic resources. Massive federal budget deficits are only the most conspicuous sign of a society that has promised itself more than it can afford. To resurrect a familiar metaphor: A more slowly growing economic pie will face more claimants for slices. Some will receive bigger slices, others smaller.

Generally speaking, there are two types of economic mobility, though they’re often confused. The first is intergenerational mobility (also called “relative mobility”). It involves children moving up or down the economic ladder from their parents’ position—do they rise to the top, stay where they started, or fall toward the bottom? Call the second type “national” mobility (specialists refer to it as “absolute mobility”). It concerns whether or not most members of each succeeding generation live better than their predecessors. If they do, then the whole society can be upwardly mobile even if all children occupy the same position relative to others as their parents on the social ladder. To take an obvious example, the poorest third of Americans lived much better in 1980 than in 1930.

In the United States, both types of mobility abound. For starters, birth is not fate. Americans do not automatically match their parents’ position on the economic ladder. A report by the Pew Economic Mobility Project finds that 61 percent of children born to parents in the richest fifth of Americans fall from that stratum, while 58 percent of children born in the poorest fifth rise above to a higher stratum. There’s not much movement from the very bottom to the very top. Only six percent of children make that journey. But in between, there’s much shifting.

Similarly, economic growth since World War II has allowed most Americans to live better than their parents did—even if they haven’t moved up the economic ladder. In the first two postwar decades, household incomes roughly doubled. Despite slower growth since then, about two-thirds of today’s Americans have higher incomes than their parents at a similar age, Pew finds. Even this understates the extent of the achievement, because some of those who lost ground still have relatively high incomes. They’re children of well-to-do families who don’t match their parents’ status, but their fall has been modest. Among the poorest fifth of Americans, about four-fifths have incomes higher than their parents’.

Both types of mobility have contributed to America’s success. Although studies suggest that intergenerational mobility—again, children moving up or down the economic ladder—is greater in some other countries, the United States has enough of it to foster the bedrock belief that striving and talent are rewarded. That is important because societies in which economic status is rigid discriminate against individual ability and effort and discourage parents from striving to help their children succeed. As for national (or “absolute”) mobility, it affects social peace and satisfaction, because intergenerational mobility is a zero-sum game. For everyone who climbs the ladder into a higher stratum, someone else must fall down into a lower one. By contrast, a rising tide does lift all boats.

But there’s a rub: Upward national mobility requires strong economic growth—and U.S. growth is weakening. Growth comes from two sources: more labor (more workers or longer hours) and improved efficiency (or labor productivity, measured in output per hour). Unfortunately, slower labor force expansion virtually guarantees a decline in overall U.S. economic growth.

As economist Brink Lindsey of the Kauffman Foundation notes, two powerful trends boosted labor force growth for many years: the influx of baby boomers from the late 1960s to the mid-1980s, and the flood of married women into jobs starting in the late 1950s. Both trends have ended. Baby boomers are retiring; the oldest ones, born in 1946, turned 65 in 2011. And women’s participation ebbed a decade ago, well before the recession, with some women deciding to stay home or retire early. (From 1960 to 1999, the labor force participation rate of women 16 and over rose from 38 percent to 60 percent; in 2011, it was 58 percent.)

As a result of these trends, the number of new workers barely exceeds the number of those retiring. Barring major pleasant surprises, the slower labor force increases reduce projections of overall economic growth from a postwar average of slightly more than three percent to slightly more than two percent, as the table below shows. (The table shows “potential” economic growth under assumed conditions of “full employment,” but actual results are also affected by business cycles.)

U.S. ECONOMIC GROWTH, 1950–2040

1950–2011 2002–2011 2012–2022 2023–2040

Annual GDP growth (%) due to:

Labor force increases 1.5 0.8 0.7 0.5

Productivity increases 1.8 1.4 1.7 1.7

Total annual growth 3.3 2.3 2.3 2.2

Note: Some numbers do not add due to rounding

Sources: Congressional Budget Office, Social Security Administration

Ideally, we would raise productivity to offset slower labor force growth. Realistically, we don’t know how to do this. What creates higher productivity is a murky mixture of new technologies, industry organization, government policies, management competence, worker abilities, and market pressures. Economists don’t fully understand the process and can’t manipulate it. Future rates of productivity growth could as easily fall as rise. In the table, the assumed annual gains average 1.7 percent, near the post–World War II rate of 1.8 percent. But gains might be two percent, one percent, or who knows what. Large deficits and higher taxes may crowd out investment or discourage risk taking, slowing productivity increases. That would further trim future economic growth, making it even harder for the young to achieve upward mobility.

It’s already hard enough. The mounting number of retirees increases pressure to move money from workers to the elderly. Consider that in 1960 the worker-to-retiree ratio was 5:1; in 2010 it was 3:1, and the projection for 2025 is nearly 2:1. At the federal level, the pressures stem from higher spending on Social Security, Medicare, and Medicaid. At the state and local levels, they stem from Medicaid (states pay about 40 percent of its costs) and pensions for government workers. In The Predictable Surprise: The Unraveling of the U.S. Retirement System (2012), Sylvester Schieber, an actuary and former chairman of the Social Security Advisory Board, estimates that state and local public employee pensions are 20 to 25 percent underfunded.

Higher taxes to pay for Social Security and Medicare will undermine after-tax wages. So will mounting employer costs for health insurance and pensions; these expenses limit what companies would otherwise pay in wage increases. Schieber estimates that all these factors could absorb two-thirds of compensation growth from 2015 to 2030. Other studies reach similar conclusions. Economist David Auerbach and physician Arthur Kellermann, both of the Rand Corporation, find that 80 percent of median-family income gains from 1999 to 2009 went to higher health spending in the form of employer-paid premiums, out-of-pocket costs, and taxes. And these studies don’t count the cost of infrastructure repair.

The future of today’s young has been heavily mortgaged. The grimmest prospect is a death spiral for the welfare state. That could happen if we continue to pay for promised benefits by increasing taxes or deficits, further retarding economic growth and thus spurring still more tax and deficit increases to sustain benefits. But to all of these unsettling possibilities, there’s a ritualistic, upbeat response: We shall overcome. We’re a can-do people. The U.S. economy adapts to change. It creates new technologies and industries. Its long-term resilience is incontestable. As Vice President Joseph Biden once put it, “No one’s ever made money betting against America.”

Unfortunately, that isn’t true. Many people have made money betting against America: those who sold stocks in August 1929 or sold the dollar in the late 1970s, and those who bet against the U.S. mortgage market in 2006. The list goes on. It’s true that over long stretches—decades—the U.S. economy has generated higher living standards for most citizens. But even this truth is selective. Banking panics occurred regularly in the 1800s. In the mid- to late 19th century, disease and poor diets lowered living standards of urban workers. Then came the Great Depression, the Great Inflation, and now the Great Recession.

So: America is not entitled to economic success. What actually happens depends on private markets and public policies. To be sure, the future is not etched in stone. Uncertainties abound, as any prediction must acknowledge. Here are three caveats.

First, forecasts of the future as an extension of the present are suspect. Unforeseen events—for good and ill—intervene. History is littered with false prophets. Consider Harvard economist Alvin Hansen (1887–1975). In 1938, when unemployment was still 19 percent, he sought to explain why the U.S. economy couldn’t shake the Depression. His answer was “secular stagnation.” There was no engine of expansion. Slower population growth meant fewer new consumers and less reason for businesses to invest. Technology was not advancing, dampening investment in new industry. And decades earlier the “frontier” had effectively ceased to exist, so there was no longer any spending on new settlements to boost the economy.

It was all plausible—and wrong. After World War II, the baby boom created a population explosion. Countless technologies spawned new industries in television, aviation, synthetic fibers, and plastics, to name a few. And there was a new frontier to settle—suburbia.

The second caveat is that economic progress may be overrated. Younger Americans may be less obsessed with material goods as the be all and end all of a satisfying life. Moreover, many Americans will enjoy rising incomes over their lifetimes, reflecting experience and seniority. In 2009, for example, the median income of working men aged 45 to 54 was 40 percent higher than for their counterparts aged 25 to 34. Viewing their own lives, most Americans might feel upwardly mobile. The difference would be that tomorrow’s 45-year-olds might have less than today’s.

Finally, we are not helpless. We might mitigate the forces that assail a broad-based affluence. Just because health spending hasn’t been tamed in the past doesn’t mean it won’t be tamed in the future. As society ages, Americans may recognize that longer life expectancies justify longer working lives and that wealthier retirees deserve fewer (or no) subsidies from less affluent younger workers. That could lead to steps that would reduce the burdens of the old on the young.

Though the future will doubtlessly differ from how anyone now imagines it, the trends fostering downward mobility are insistent, because they are rooted in demographics, politics, and global economics.

We are at a symbolic turning point. The coincidence of the Great Recession with baby boomers’ retirements marks the eclipse of the post–World War II social compact, formed in the 1950s and ’60s. That arrangement promised that business cycles would be mild, because economic policy could moderate booms and busts. Technological change would be gradual, because dominant firms such as General Electric, AT&T, and General Motors controlled it and had a stake in gradual change. Large institutions were mostly benign. Major corporations provided career jobs and generous fringe benefits (health insurance, pensions) for most of their workers. There were reciprocal loyalties and obligations between employee and employer. Greater wealth enabled government to create a safety net for the old, the disabled, and the poor.

The props underlying this unspoken compact have been weakening since 1980. Technological changes are no longer gradual; they’re abrupt and disruptive, driven largely by computer hardware and software companies, or Web-based enterprises such as Google and Facebook. Career jobs still exist but are dwindling in number. The reciprocal loyalties between workers and their employers have weakened. The promise of overall economic stability seems hollow. The fundamental lesson of the 2007–09 financial crisis is that economists overestimated their ability to prevent calamitous boom-bust cycles. Globalization has increased economic complexity faster than economists’ capacity to keep up. The social safety net—actually, the welfare state—is popular, but huge government deficits put its affordability in doubt.

The premise of the post–World War II affluent society, that we were or would soon become so rich that we could afford almost anything, was never true, but we often acted as if it were. We avoided unpleasant choices, especially in government, accepting routine federal budget deficits (46 out of 51 years since 1961). Now, limits are painfully evident. There are more promises than can be fulfilled. Meeting all of government’s spending commitments would require higher, broad-based taxes, which both liberals and conservatives reject, or perpetually large deficits, which both parties consider unsustainable and undesirable.

What looms is a future of more distributional struggles between young and old, rich and poor, different regions, and many interest groups. Each will defend subsidies, work to avoid tax increases, and maneuver for regulatory advantage.

The role of economic growth in advanced nations is less to make people richer than to reduce conflict. If most people feel that they’re “getting ahead,” they’re less resentful of others who are doing better or hold different views. “Periods of economic expansion in America and elsewhere, during which most citizens had reason to be optimistic, have also witnessed greater openness, tolerance, and democracy,” writes Harvard economist Benjamin Friedman in The Moral Consequences of Economic Growth (2005). If, however, people fall behind—or fear they will—they become more resentful. Until the Great Recession, three decades of growing economic inequality had inspired little popular backlash. This changed after unemployment rose. The Tea Party and Occupy Wall Street movements reflect the fallout of feared downward mobility.

Lower economic growth will have broad consequences. Already, defense spending is headed toward claiming the lowest share of GDP since 1940. In effect, the welfare state is defeating the Pentagon. Some will cheer, others complain. Either way, America’s global role will change.

The prospect of downward mobility could discourage younger Americans from marrying and having families—a development that would accelerate America’s aging. Although people marry and have children for many reasons, their economic outlook is an important influence. Low-income men are not prime candidates for marriage. Birthrates collapsed in the 1930s because families worried that they could not support new offspring. It is surely no coincidence that in the wake of the Great Recession the number of marriages fell five percent in 2010 and births three percent.

As it is, the generations are in an undeclared war. Americans in their late forties, fifties, and sixties believe that the contract made with them should be kept. They want their Social Security and Medicare benefits. They are angry when what they thought were career jobs are unexpectedly terminated; corporate buyouts and firings weren’t part of the bargain. Meanwhile, their children and grandchildren are befuddled and frustrated. Their unemployment rates are high, and their wage levels—compared to those of the past—are low. Yet they feel guilty advocating trims to Social Security and Medicare, even when the transfers go from the struggling young to the comfortable old.

The Affluent Society was more a state of mind than an explicit economic target or threshold level of income. It announced the arrival of an era when traditional economic concerns were being overwhelmed by a seemingly unstoppable flood of abundance. Prosperity was a panacea. We could afford a decent society as well as a wealthy society. Many traditional social, political, and economic choices could, with a little patience, be evaded. There was enough for almost everything. We have been, in historian David Potter’s apt phrase, a “people of plenty.” What happens when there is less plenty than we expected? We are about to find out.

Full text PDF available here.

Robert J. Samuelson, a columnist for The Washington Post, is the author most recently of The Great Inflation and Its Aftermath: The Past and Future of American Affluence (2008).
more from this author >>

COMMENTS (25)

The opinions expressed here are solely those of the author and in no way represent the views or opinions of the Woodrow Wilson International Center for Scholars. This section is moderated by Wilson Quarterly staff.

re Withering of the Affluent Society

This is a good article, but I would suggest there are things that can be done to help address America's problems. Firstly, the development of shale gas resources is offering cheap, cleaner energy that could help make US industries more competitive and provide lower living costs while also reducing overall emissions. Second, the US needs to address its ridiculous health care system by looking at successful models in other countries (e.g. Australia) that are both fairer and more efficient than America's. Third, make the tax system more equitable and more efficient. These three changes alone would make a big difference.

Posted by: Steve in Canberra | 8/12/12

This is an excellent article Mr. Samuelson. However you, like every other MSM commentator, always miss a major factor: Immigration. The average standard of living would be higher for Americans were it not for the over 20 million legal and illegal immigrants that have come here in the last two decades. Ending immigration is one of the best ways for us to maintain out living standard and culture. The economy and the well being of Americans cannot be properly accessed without looking at immigration. Please try to incorporate it into your future analysis.

Posted by: Winston Smith | 8/13/12

Rapacious Technology

Neither Obama nor Romney cares to wade into candid discussions about the quicksand of technology and how it has displaced and replaced workers since the ascent of the internet and its many capabilities. Just an offhand listing of businesses/industries/professions where classifications of workers are now obsolete, anachronisms or threatened and reduced: airlines, journalism, publishing, retail, unions, the postal service, printing, video stores, educational establishments, financial and banking services, customer service (telecommunications), administrative fields, even IT professions themselves, etc., etc. All of this in a world of 7 billion--growing and demanding jobs. And the "answer" proposed by politicians and media pundits? "Become an enterpreneur." Sorry, but THAT and a plug nickel won't even pay your next month's water bill. It's a reality that won't go away; in fact, such workforce reductions will only continue and expand, but no politician wants to discuss it, let alone concede the obvious and admit that all the king's horses and men are unable to stop the bleeding.

Posted by: Kate Javanbakht-sani | 8/13/12

Hmmm...

The article is interesting as far as it goes, but it doesn't put the problem into a global perspective. By the time these things come to pass, world population will have doubled again, putting severe strain on food webs. Ecological declines will have got worse, climate change will be really biting. China and India will be in big environmental and population trouble. And so on. The US is not a bubble.

Posted by: M Cope | 8/13/12

"a society that has promised itself more than it can afford" is a rather peculiar way of expressing the fact that some Americans (many of them), and their government institutions, have lived beyond their means. Societies are not the kind of entities that promise things, persons and politicians do. Robert Samuelson's article presents some useful summaries of factors that have contributed to our current situation, but is weakened by its penchant for lapidary pronouncements. We are not "at a symbolic turning point", but simply experiencing a significant instance of the fluctuations that have always accompanied human fortunes wherever life is lived in any manner, shape or form. To know something about the factors that enter the current siatuations is useful, but they are poor props for prophesy.

Posted by: Bjorn Merker | 8/13/12

Post-War

I think the key issue that most Americans fail to understand, is that after WWII, America was the only industrial economy still standing. As such, the US had a dramatically world marketplace to command. US Companies made tremendous profits, and money trickled everywhere. Nothing surprising there. Then the world re-balanced itself, other countries recovered, and that huge advantage was gone. Hence, times seem tighter now, but in reality, we are simply reverting to a more globally balanced norm. It feels like we are poorer, but what we failed to understand and feel during the 30-40 years post-WWII is that during that time, we were excessively rich. We were rich not because we were destined to be rich for forever. We were rich b/c the times allowed it and we worked hard. We can't get it into our thinking that we Americans are not exceptional. We're like everyone else. Many of us work hard; some of us are stupid and lazy. Same as everywhere. The hardest part for Americans is we got used to being on top without having to compete too hard for it. Now, with the rest of the world relatively healthier, we have to work harder. It feels like we're poorer, but in reality, we're just less excessively rich. Thx, m

Posted by: Mark Lilly | 8/13/12

To commentators who mentioned immigration and population growth: if it were not for population growth globally and immigration into the United States, we'd be facing a worse economic situation than we are now. Short of a major restructuring of the economy both nationally and globally, expansion is a requirement; population growth and expansion is a part of this. For capitalism to 'work,' things need to be going forward. Right now populations are still expanding in some places; on a similar standing, new natural resource deposits are being opened up and exploited. However, neither of these trends are necessarily going to continue. World population will continue to rise for a decade or two, probably, but will then almost certainly begin to decline. China's population is nearing its peak, which will result in many of the sorts of problems this article lays out in regards to the US. Africa and perhaps parts of Latin America will continue to expand population-wise for a while; natural resources in both regions are and will continue to be major targets of capitalist expansion. But they're not inexhaustible, and their continued utility requires the expansion and vigor of 'domestic' markets in the exploiting countries. All of this, and really most of what the article describes, is to say that post-War capitalism is facing a very major crisis, to say the least. You don't have to be a Marxist to recognize that capitalism, in all of its iterations since the Industrial Revolution, has serious internal contradictions and potentially self-destructive aspects. The post-War recovery and reconstruction of capitalism, which was augmented by the so-called 'neoliberal' transformations of the post-Soviet period, has proven to be a pretty robust form of capitalism, all things considered. The integration of liberal democratic state structures into corporatist capitalist structures ensured fairly regular capital flow (to favored parties, obviously) and expanding material comforts for the working classes, among other things. Coupled with the declining returns of the state capitalism of the Soviet sphere, liberal capitalism managed to keep itself chugging along. The returns have been pretty comfortable, albeit at great costs (but that's the game). However, like any massive system maintained by centralized planning and continued injunctions of force, exploitation, and heavy regulation, it's unlikely to last forever. Capitalism, for all the material and otherwise benefits it has brought us (and it would be foolish to deny that), is a fundamentally unstable and destructive system, even if it has been rendered pretty stable and even constructive (for some, perhaps even many) in recent decades. Just as the ponderous state capitalism of the Soviet sphere ultimately gave in to its internal contradictions, liberal capitalism has the same potential for massive transformation, not necessarily pleasant ones. This need not terrify us, nor does it require some sort of reprise of state capitalism, or a futile attempt to re-obtain the post-War synthesis. There are other avenues of economic and social organization, after all.

Posted by: Jonathan | 8/13/12

Secular Stagnation

Alvin Hansen might well have been correct about secular stagnation except for World War II. The war led to great advances in many areas of science and engineering, industrial plants were built or expanded, the GI Bill greatly increased the cadre of educated men, the US was the only non-wrecked/impoverished industrial economy, the baby-boom occurred, the military-industrial complex began, and competition with the USSR and an expanded consumer economy led to continued scientific and industrial development. From a system dynamics point of view, a system may have sub-optimal stable attractors, which can only be escaped by some environmental disruption.

Posted by: Jason Olasky | 8/13/12

Stagnation?

Calling BS on this essay. A) The fundamental problem of modernity isn't scarcity, it's "want in the midst of plenty." Our current Great Recession is a shining example. Many more goods and services could be provided if there was a demand for them. Many people want jobs or want better jobs and are willing to work those hours and even invest in extra education. This is a typical failing of modern capitalism, but doesn't reflect an inherent need to get by with less. B) Technological growth works on productivity. While it's difficult to predict, there are workarounds. Higher wages encourages investment in labor saving technology and thus eventually boosts productivity. Higher investment in research and education boosts long-term prospects for technological growth. Both of these are not COSTS they are investments that will more than repay themselves. C) The primary problem facing modern capitalism is the capture of government by rent seekers and the wealthy. Sure, it was "always so," but the Great Depression and Second World War scared that oligarchy and they in turned allowed/encouraged the policies that addressed A and B above. The resulting growth was not only the result of being the "sole" economic power. Trade isn't a zero sum game. We are richer when the world is richer. The author's argument reads like another attempt to sound like a "very serious" person who understands the need to stick it to the elderly.

Posted by: Structure | 8/13/12

The US is like any Club. The privileges of membership have been packed with "our own", the only way for anybody to get in is as an employee or as a supplier of goods and services. With a few exceptions, of course.

Posted by: S. Suchindranath Aiyer | 8/14/12

Immigration

Those who register concern about immigration will not find any support from Mr Samuelson, who would be interested in demographic change as much as growth. The importation of the unskilled and the illegal will increase growth less per capita than is necessary to maintain existing levels - this is NOT the sort of growth the USA needs.

Posted by: Patrick | 8/14/12

Qualitative Growth

Commentator "Jonathan" I think gets it right. Samuelson takes it as given that "Growth comes from two sources: more labor (more workers or longer hours) and improved efficiency (or labor productivity, measured in output per hour)." This is the formula for quantity growth: more stuff made by more people for even more people. But it is not the formula for quality (or qualitative) growth, i.e. improvement in the quality of goods and services and experiences, which generates income and employment by the increasing application of intelligence, design, and connoisseurship to a broader range of goods. Quality growth can proceed without population growth or extra resource usage. For an extended treatment of this idea, google "Better Is Better Than More: Complexity, Economic Progress, and Qualitiative Growth".

Posted by: Michael Benedikt | 8/14/12

what about small growth?

This article pinpoints the cause of our current woes. Nobody is saying this publicly but slow growth means there just isn't as much profit to be made, thus banks and financiers have to chase ever greater bubbles and scams to deliver the sorts of unrealistic returns the market demands. Everyone else competes for a piece of a shrinking pie, which means neither tax cuts nor promised entitlements can be delivered in any real world scenario. Too bad you can't get elected for telling the truth. But what about small growth, or growing a smaller leaner economy, more efficient at producing and distributing goods and services through high technology and better social institutions? I have heard this is economic heresy, but why? Why can't we grow the density and efficiency of our economy rather than consuming and demolishing in the name of profits, which alas, are shrinking by the day.

Posted by: Erik | 8/14/12

Fake problems and fake solutions

Commenter "Structure" is correct. We do not have a shortage of productive capacity, skilled and unskilled workers, raw materials, etc. What we have is a shortage of demand caused by the debt-deleveraging resulting from decades of private sector debt excesses (profligate bankers). Post-WWII, the US government pumped massive amounts of money into the economy and put people to work. This spending created real jobs, real goods, real technological innovations, a real improvement in our standard of living. Anyone who believes our growth was primarily due to U.S. competitive advantage over war blighted trade partners should open a history book. Not only did we deficit spend our way to to a strong economy, we also pumped massive amounts of money into the economies of those very competitors, otherwise they would not have been able to purchase our manufactured goods.

Posted by: ggm | 8/14/12

What About The Rest Of The World

We seem to be ignoring the 800 million Chinese who will work for almost nothing. The availability of such cheap labor is the root cause of your loss of manufacturing. So the middle class suffers, and the rich enjoy the bonanza of opportunities (because they can exploit the golden opportunities).

Posted by: Pete1215 | 8/15/12

Effects of

In an otherwise exceptional analysis, the missing piece is the lowering of trade barriers between developed countries and the developing world. This began with GATT and accelerated with the WTO and NAFTA. When the First World made things and imported natural resources from the Third World we had mutually beneficial trade. Trading between same economic level countries was also beneficial (Japan's automobiles hurt Detroit in the short run but ended up improving both countries industries in the end). But what has free trade with China, India, and the rest of the developing world wrought? The elimination of formerly good-paying blue collar jobs that allowed the middle class to buy a home and raise a family. But now those jobs have been lost. And what has our great economy offered the high school graduates? Nothing. And this continues as even high tech jobs get offshored to Asia. Our government and the rest of our ruling class (media, business, academia) keep emphasizing how our economy is dependent on consumerism---convincing people to buy things that they don't really need, while continuing the ruinous free trade policies that have eliminated the ability of Americans to work or make a decent wage necessary to consume. This contradiction has not gotten the attention it deserves. Democrats keep thinking we can just have more government workers to replace the missing private jobs and pay for it with ruinous taxes and debt. But Republicans seem to think that anyone can grow up to become Bill Gates or Mark Zuckerberg. For the vast millions of us that is not going to happen.

Posted by: MarcV | 8/17/12

Excellent article

I submitted an article eight years ago to Macleans (in Canada) entitled Why should I pay for your hip relacement?The coming war between generations. It contained many of the arguments found in your piece and demonstrated how years of tax avoidance (deficits) were exasserbating demographic strains on our future capacity to deliver social programs in the form of health, education, and welfare. In spite of the piece being solicited by the publication, they rejected the work as being “too dark” and “bordering on dystopia”. There is a war. It is real and is bound to get ugly. In 1980, the province of Ontario spent 18% of its budget on healthcare; in 2008 they spent 40%. According to Statistics Canada, people over the age of 80 consume 70% of all healthcare spending. Can you say “death panels”? I’m kidding of course. But our medical profession is going to have to start answering some new questions with regards to ethics (i.e. joit replacements for the elderly), and some old people ain’t gonna like it.

Posted by: J.C. in Canada | 8/18/12

Generational war

Mr. Samuelson, American generations are not yet in that undeclared war. It is coming, but not yet. Personally, I'm 50 and do not expect SS to be there for me when I reach 67. See, sir, it's there for you at 65 and government has already changed the deal on me. I expect it to change again. How could it not? When 2 workers with a median income of $50,000 must pay FICA taxes to support one retiree's median benefit of $20,000, the two young workers are watching 20% of their income go to FICA before they watch 25% go to income tax and before they watch 8% go to sales tax and before they get tagged for another 8 or 9% from the various states methods of taxation. I do not believe that young voters with parents benefiting from inter-generational wealth transfer will be willing to tolerate such a oppressive level of taxation. If my thesis is correct, the election which finally shatters the Social Compact (which no living person actually agreed to anyway) will be that of 2028, when I'll be 66. I have seen this train wreck approaching since the 1986 'saving' of Social Security. I've spent most of my working career knowing that there will be no helping hand from government in my doddering old age. Citizens younger than me also see the writing on the wall. The only defenders of the existing system are the takers who benefit from it now and demographically out-vote the sufferers who are taxed to support it. Their numbers will diminish, and the whole creaky edifice of FDR and LBJ will fall.

Posted by: Jerome Barry | 8/31/12

The Withering of the Affluent Society

I read the article, and found it disquieting. Samuelson says that 'the young' will pay for the elderly. He says that their disposable income will fall a bit because of taxes, and having to pay out to support all these elderly (the baby boomers, one assumes), and they won't be able to buy as much stuff ("They might live in slightly smaller houses, drive more fuel-efficient vehicles, or eat out a bit less. These are inconveniences, not tragedies"). How can reigning in the super-sized American lifestyle be considered a problem? Moreover, boomers have paid into their own pension schemes for years, and have paid into their helath insurance and their benefits plans along with their employers (in some cases); so I fail to see why there is this idea that somehow they will all become a burden on a younger smaller generation. Secondly, Samuelson answers his own question to some degree. I am a professor in Canada. I have never taught a generation such as this one (not the forty somethings -- I teach twenty somethings). They appear to be socially networked, into non-profits and profits-to support social causes (rather than billionaire CEOs' causes), long to shake off nationalistic bluster and not very impressed by the material things that previous generations valued. Boomers and boomer parents bought new cars every couple of years, discarding the old ones in part because the quality was appalling, and in part because having the latest model was the thing to do in the tight little suburban world in which they grew up. My students like their techie gadgets, and like to have the newest gadgets in their pockets or on their desks. They are more interested in being part of a networked society rather than a consumer society; they seem to value ethical, environmental and social goals as much, if not more, than judging career success and well-being as 'how much you can buy, flaunt and trash'. No, I can think of a very good world into which this generation is moving. I world with universally accessible health care (an anathema to Americans, still), good infrastructure, new less polluting and more efficient technologies and lifestyles that place them as stewards of the limited resources we have available; new technology may mean nanotechnology, ICT, biotechnology, world communities. Growth will extend beyond mere material things; they are concerned about they way some nation states with cheap abundant labour are still being held hostage by the consumer societies of wealthy regions' insatiable appetites for throwaway junk, that uses up resources and pads the GDP but creates nothing for tomorrow. Get that problem licked and the younger generation may just be able to stand as proud if not prouder than their parents and grandparents.

Posted by: Sarah A. | 9/25/12

The Withering of the Affluent Society

By the way, J.C in Canada. Your reference to "some old people ain't gonna like it" includes you, unless you die young. I'm quite happy for my universal healthcare helping my elderly friends/relatives stay well; they helped to build and fund the system that I now contribute to. I pay for car insurance that I hope I'll never have to claim. I'm Ok with spreading the risk and the costs. Why the invective hurled at the elderly who may need to access the healthcare system as they age, rather than crawling under a rock to fade away quietly to preserve your disposable income? The elderly were once young, they built your 'affluent society' from which you benefited. Presumably they raised you? Not all the elderly are despised. Perhaps when you are elderly, you expect to be despised as much as you seem to despise your elders today? I suspect you think you are immune to the frailties of old-age...but you are not.

Posted by: Sarah A. | 9/25/12

The Withering of the Affluent Society

Why aren't personal vegetable gardens being "pushed" as a mainstream necessity?

Posted by: TexasTexasTexas | 9/29/12

Simple solution

The solution to this may be the same solution used in the forties. The NWO folks, if they desire to live in an influential and prosperous America, will simply have to figure out how to get Russia, China, and India to blow the crap out of one another without touching the USA. Then we can once again enjoy the prosperity of the fifties and sixties. This is not the solution I'm advocating for, but it is one possibility.

Posted by: BooMushroom | 10/14/12

is it any surprise

When you have an administration that places redistribution and environmentalism over economic growth and innovation, is it any surprise that our affluence is disappearing.

Posted by: richard40 | 10/15/12

Social Security

@Sarah A. I believe you misunderstand how the Social Security system functions. Originally, the age of 65 was set because almost no lived up to 65. However, while lifespan increased the age to receive social security benefits has not. Social Security in the United States used to be funded through taxes and was predicted to acts as a savings account for those taxes to be distributed to those eligible. However, because of poor prediction models, they failed to account for cost of living and inflation and all that other good economical stuff. Therefore, the model for Social Security now is a self-funding account. Taxes raise just enough money to pay out those eligible. Basically your taxes go in and they immediately go out to the next person in line to receive their payment. Therefore, yes you have been paying into Social Security, but it is not your own plan you are paying into. You are paying to fund the plan of others; just like how the young will be paying into yours when you retire.

Posted by: Jennifer | 10/29/12

Much is unsaid here

about cause, chiefly the steady increase of the size of big government, and centralization of policies and authority, which, for all reasons we know, lays like a blanket made of lead over the whole shebang. also, to me, it's sheer insanity to cling to a 75 year old model of SS when eligibility didn't occur until AFTER expected average life-span! and what, exactly, is wrong in means testing SS recipients? even MediCare costs can be mitigated by requiring well-heeled recipients maintain a catastrophic illness private policy, even if MediCare were to share the cost of any catastrophic illness 50/50 with said private insurance. everyone pays taxes to maintain means-tested welfare programs but relatively few of us ever make use of those. madness, and insanity.

Posted by: Lark | 11/10/12

The Withering of the Affluent Society

Open Doors

Beyond the Brain

The Tocquevillean Moment . . . and Ours